Canada Pension Plan reform could benefit Canada, study found

Internal research by the federal Finance Department says there would be economic benefits from expanding the Canada Pension Plan, and it suggests thecountry could afford an improved plan in astrong economy.

Kevin Sorensen, the junior finance minister, had been critical of efforts by the provinces to expand CPP benefits, quoting from the study when he said between 17,000 and 70,000 jobs could be killed by extending the CPP.

After a December meeting with provincial finance ministers, federal finance minister Jim Flaherty rejected a proposal backed by all 10 provinces to boost CPP premiums, saying he believed it would hurt the economy.

But a summary of the internal study he used to justify that decision shows a more nuanced take on expanding CPP. The document concluded that improved pension benefits could help Canadas economy in the long run.

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The Canadian Press obtained a copy of the Dec. 13 briefing note for Flaherty under the Access to Information Act.

"In the long run, expanding the CPP would bring economicbenefits," says the briefing note. "Higher savings will lead to higher income in the future and higher consumption possibilities forseniors."

The currentCPPannual benefit is $12,150, and most Canadians get less than $7,000, because of earlier retirement or time out of the workforce. Even with Old Age Security and Guaranteed Income Supplement (GIS), the pension benefit adds up to just over $16,000.

Internal briefing onCPPpremium

The federal analysis also says CPP improvements phased in over a period of time could be absorbed in more robust economy.

It looked at the phase-in of premium hikes from 1997 to 2003 that boosted contributions and made the plan more financially sustainable for the period when the baby-boom generation is retiring.

"If such an increase is implemented at a time of robust economic growth, as was the case during the late 1990s the impact would be outweighed by the underlying strength of the economy," it concludes.

It does warn of a sharp shock to the economy if boosted CPP premiums are phased in over one year, though that was not the plan put forward by Ontario, P.E.I. and other provinces, which had advocated bringing in increases over five to 10 years.

Flaherty preferred voluntary plans

In rejecting their proposal, Flaherty exhorted middle-class Canadians to save more and extolled the benefits of voluntary programs created by the federal government, including tax-free savings accounts and pooled registered pension plans.

Ontario Premier Kathleen Wynne reacted to the rejection with bitterness, pledging to go it alone on creating a pension plan for all Ontarians. Pension reform has become a major plank in her re-election campaign.

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The provinces had argued that a large public pension plan, with good financial management, would provide a more secure retirement for Canadians than the current hodgepodge of underfunded private plans and voluntary savings vehicles.

A spokeswoman for the finance department, Stephanie Rubec, did not say whether the briefing note or the results of the internal study had been shared with the provinces.

In a statement in the House of Commons last week, Sorensonsaid Canadians do not want to pay the higher payroll taxes that would result from CPP reform.

"CPP expansion will prevent...businesses from hiring new workers, as well as force them to economize by either reducing hours or laying off existing employees," he said..

"We want to do what is right for Canada. Canadians do not want to pay higher payroll taxes."